Note #2 - ECON 133 Securities Markets Lecture 2 Jia-Yuh...

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ECON 133 Securities Markets Lecture 2 Jia-Yuh Chen July 29, 2009
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Stock of the Day I I iShares MSCI Emerging Markets Index (EEM) I I Coupling/De-coupling I Components
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Risk Sharing and Social Justice I Risk-sharing helps avoid life-cycle problem, provides smooth growth, and encourages investment I The ultimate form of risk sharing is communism I Moral hazard I I Right incentives for innovation I Backus, Kehoe, and Kydland±s evidence
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I The fundamental rule of portfolio management : I Systematic and idiosyncratic risk I Mean-variance representation I risk and reward I always want higher return and lower variance/standard deviation
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I N uncorrelated assets to invest. Equal weights. Expected portfolio return = 1 N ( R 1 + R 2 + ...... + R N ) Portfolio variance = 1 N 2 ( Var 1 + Var 2 + ...... + Var N ) I Two-asset portfolio E ( R ) = xR 1 + ( 1 x ) R 2 Var = x 2 Var
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This note was uploaded on 04/07/2010 for the course ECON 133 taught by Professor Chen during the Summer '09 term at UCSC.

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Note #2 - ECON 133 Securities Markets Lecture 2 Jia-Yuh...

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